Law and the Public’s Health

This article reviews recently promulgated Internal Revenue Service regulations for nonprofit hospitals seeking
tax exemption and a new estimate of national hospital community benefit spending, and analyzes how they
point to the value of hospitals working with community partners to address the social determinants of health. It
then explains how unmet legal needs function as health determinants, and suggests how hospitals’ participation
in medical-legal partnerships can address those needs. This article was published on December 7, 2015, at www
.publichealthreports.org
Sara Rosenbaum, JD
George Washington University, Milken Institute School of Public Health
Department of Health Policy and Management, Washington, DC

TAX-EXEMPT HOSPITALS AND
COMMUNITY HEALTH UNDER THE
AFFORDABLE CARE ACT: IDENTIFYING
AND ADDRESSING UNMET LEGAL
NEEDS AS SOCIAL DETERMINANTS
OF HEALTH
Mary Crossley, JD
Elizabeth Tobin Tyler, JD, MA
Jennifer L. Herbst, JD, MBE, LLM
Under the Affordable Care Act, nonprofit hospitals
seeking tax exemption must regularly survey and
respond to community health needs.1 This new obliga-
tion expands hospitals’ roles beyond providing clinical
care and calls for them to engage with their communi-
ties. Recently promulgated Internal Revenue Service
(IRS) regulations2 and a new estimate of national
hospital community benefit spending both point to the
value of hospitals working with community partners to
address root causes of poor health.3 This installment
of Law and the Public’s Health reviews key aspects of
the IRS regulations, explains how unmet legal needs
function as health determinants, and suggests how
hospitals’ participation in medical-legal partnerships
(MLPs) can address those needs.
BACKGROUND
For more than a half-century, the IRS has granted
nonprofit hospitals tax exemption as charitable orga-
nizations under section 501(c)(3) of the Internal Rev-
enue Code.4 To be considered charitable, a hospital
must show that “it serves a public rather than a private
interest,”5 providing a quid pro quo for the benefit
it receives from being relieved from the burden of
taxation.6 Over time, the IRS’s approach to assessing a
hospital’s charitable character has evolved from a char-
ity care standard to the community benefit standard
first announced in 1969.7
After this announcement, however, the IRS provided
no concrete directives or quantitative measures as
benchmarks for tax exemption. With minimal federal
oversight, most of hospitals’ community benefit spend-
ing took the form of charity care, which many hospitals
viewed as including not just treating uninsured indigent
patients, but also what they claimed to be the differ-
ence between the cost of treating Medicaid patients
and the amounts paid by state Medicaid agencies. In
the wake of media reporting in the early 2000s on
nonprofit hospitals’ unsavory billing and collection
practices, the federal government,8,9 state departments
of revenue,10 and academics11 increasingly viewed the
existing community benefit standard as providing
inadequate public benefit in return for hospitals’ tax
exemption. The result was a new set of obligations in
the Affordable Care Act for tax-exempt hospitals regu-
lating their charges, billing, and collection practices
and requiring them to establish and publicize charity
care policies.12 The new obligations made compliance
with the Emergency Medical Treatment and Labor Act13
an express condition of tax exemption and established
ongoing community health planning obligations that
require community and public health involvement as
well as active implementation strategies.
A FOCUS ON THE COMMUNITY HEALTH
NEEDS ASSESSMENT REQUIREMENT
As discussed in a previous installment of Law and the
Public’s Health,14 section 9007 of the Affordable Care
Act requires tax-exempt hospitals to conduct com-
munity health needs assessments (CHNAs) at least

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196    Law and the Public’s Health
once every three years, taking into account a broad
range of community input, and to adopt a strategy for
addressing the community health needs identified.1
This new requirement signals Congress’s expectation
that hospitals’ charitable obligations not only lie in
caring for those who are unable to pay, but also extend
to inquiring about and responding to the health of
their communities. The statute itself is short on spe-
cifics, leaving responsibility to the IRS—as the agency
responsible for administering the Tax Code—to spell
out what hospitals must do to meet this new require-
ment. This regulatory guidance is particularly impor-
tant because, although CHNAs are regular practices
for public health departments, most hospitals had
probably never conducted one.
FINAL IRS REGULATIONS IMPLEMENTING
SECTION 9007
Final IRS regulations released on December 29, 2014,
provided that guidance.2 These regulations embrace
public health methods and understandings that may
encourage hospitals to move beyond their role as
care providers by contributing to community health
improvement partnerships. Although the regulations
generally accord hospitals flexibility in carrying out a
CHNA, they are directive about the importance of com-
munity input. In assessing community health needs,
hospitals must solicit and take into account input from
a governmental health department and from medically
underserved, low-income, and minority communities.
The regulations also endorse hospital participation
in collaborative efforts as a way to address the health
needs identified.
Moreover, the IRS’s explanation of the health needs
that hospitals must identify clarifies that they include
“not only the need to address financial and other
barriers to care but also the need to prevent illness,
to ensure adequate nutrition, or to address social,
behavioral, and environmental factors that influence
health in the community.”2 In short, the regulations
recognize social determinants as health needs, paving
the way for hospitals to participate in broad-based
efforts to address upstream determinants of health.
HOSPITALS’ FOCUS ON INDIGENT CARE
AS A COMMUNITY BENEFIT
A recent study, however, shows a wide gulf between
the vision of tax-exempt hospitals as active partners
in community health improvement and hospitals’
actual practices under the preexisting community
benefit standard. According to one study, the value
Public Health Reports  /  January–February 2016 / Volume 131
of the nonprofit tax exemption in 2011 (as measured
by forgone federal, state, and local taxes, as well as
public donations and the value of tax-exempt bond
financing) was $24.6 billion, up from a calculated
value of $12.6 billion in 2002.3 Even more stunning is
the IRS’s 2015 statement to Congress that tax-exempt
hospitals reported spending $62.4 billion in 2011 on
community benefit activities. The study also described
the quid pro quo hospitals provided in return for the
immense benefit of tax exemption and, similar to a
previous study,15 found that hospitals allocated less than
8% of their community benefit spending (or less than
1% of their total expenditures) to either community
health improvement activities or community-building
efforts that improve health.3 Instead, more than half
of hospitals’ community benefit spending (56%) went
to offsetting losses from patient care for indigent
patients or reimbursement by means-tested govern-
ment programs (e.g., Medicaid and Children’s Health
Insurance Program).3
Despite the disparity between hospitals’ established
community benefit practices and the Affordable Care
Act’s vision of hospitals as integral players in com-
munity health improvement, paths exist for hospitals
to grow into their expanded roles as they assess and
address community health needs. One of these paths
is through participation in an MLP.
IMPROVING COMMUNITY HEALTH BY
ADDRESSING UNMET LEGAL NEEDS
The explicit guidance in the IRS regulations regarding
the identification of social determinants of community
health, as well as the clear directive to hospitals to build
broad community partnerships, provides an important
opportunity to engage legal partners in the CHNA
process. Many social determinants of health, including
access to income, insurance, nutrition, safe and healthy
housing, and freedom from exposure to violence, are
common legal problems. Legal aid interventions can
be critical in improving individual and community
health (Figure).
MLPs integrate civil legal aid into hospitals and
health centers to address patients’ unmet legal needs,
such as substandard housing, food insecurity, domes-
tic violence, and unemployment, and to detect and
confront larger systemic barriers affecting community
health. According to the National Center for Medical-
Legal Partnership, MLPs are now in 135 hospitals and
127 health centers in 36 states.16 By building partner-
ships among health-care, public health, social-service,
and legal professionals, MLPs both identify and address
social determinants by linking the clinical setting to
 Law and the Public’s Health   197

the broader community in which patients live. The
Health Resources and Services Administration has
explicitly recommended legal services as allowable costs
under 330 grants to federally qualified health centers
because of the importance of these enabling services
in alleviating social and economic threats to health.17
Legal partners, therefore, can be critical contributors
to CHNAs. Without an assessment of the role of unmet
legal needs in health outcomes, CHNAs may miss
important factors contributing to community health.

Figure. How civil legal aid helps health-care address the social determinants of healtha

a
Source: Marple K. Framing legal care as health care. Washington: National Center for Medical-Legal Partnership; January 2015. Also available
from: URL: http://medical-legalpartnership.org/new-messaging-guide-helps-frame-legal-care-health-care [cited 2015 Sep 10].

Public Health Reports  /  January–February 2016 / Volume 131

198    Law and the Public’s Health
IMPLEMENTATION STRATEGIES: LEGAL
ADVOCACY TO IMPROVE COMMUNITY HEALTH
The new regulations require that a hospital facility
develop an “implementation strategy to meet the com-
munity health needs identified through the hospital
facility’s CHNA.”18 For each health need identified in
the CHNA, the hospital facility must describe how it
plans to meet the health need, including the actions it
will take, the resources it will commit, and the organiza-
tions with which it will collaborate to address the need.
Because legal barriers play a significant role in com-
munity health, confronting those barriers head-on can
be a critical component of an implementation strategy
aimed at addressing the social determinants of health.
Preliminary research indicates that MLPs improve
patient and community health and reduce health-care
costs.19 MLPs have proven effective in targeting legal
interventions toward an identified community health
need. The MLP at Cincinnati Children’s Hospital
Medical Center, for example, successfully directed legal
intervention toward enforcement of the housing code
for a substandard housing cluster after the hospital
used geographic information system mapping to iden-
tify the homes of children hospitalized for asthma.20
A key component of a hospital’s implementation
strategy is to determine how it will direct resources,
typically deployed through its community benefit activi-
ties, to address identified community health needs.
One innovative hospital, Seattle Children’s Hospital,
has included its legal partners in the development of its
CHNA and has invested in an MLP through its commu-
nity benefits program.21 As the CHNA process continues
to drive innovative hospitals’ strategies to improve
community health, evidence-based approaches, such
as MLPs, should be considered.
IMPLICATIONS FOR PUBLIC HEALTH PRACTICE
Because the new IRS regulations require hospitals
to seek input from at least one governmental health
department, public health officials may have a chance
to influence how hospitals undertake their new CHNA
obligations. Moreover, health departments that engage
productively and proactively with hospitals may help
steer how community benefit funding is invested in
community health improvement. A danger exists that
funding will simply flow to pet projects of hospital
administrators, but public health input emphasizing
evidence-based practice may promote funding deci-
sions that are more likely to improve community
health. In particular, public health practitioners should
be aware of how unmet legal needs function as social
determinants of health and be familiar with the well-
Public Health Reports  /  January–February 2016 / Volume 131
established model for MLPs. They should encourage
hospitals to include legal partners (e.g., civil legal aid
programs or MLP attorneys, if an MLP already exists)
in the CHNA process to ensure that the assessment of
health needs includes unmet legal needs. Finally, if a
hospital chooses to participate in an MLP as part of
its implementation strategy under the Affordable Care
Act, public health practitioners may play an ongoing
role, both as consultants and as partners, in driving
any efforts toward systemic change that may flow from
the MLP experience.
Mary Crossley is Professor of Law at the University of Pittsburgh
School of Law, Pittsburgh, Pennsylvania. Elizabeth Tobin Tyler
is Assistant Professor of Family Medicine and of Health Services,
Policy, and Practice at the Alpert Medical School and the School
of Public Health at Brown University, Providence, Rhode Island.
Jennifer Herbst is Associate Professor of Law and Medical
Sciences at Quinnipiac University School of Law and the Frank H.
Netter MD School of Medicine at Quinnipiac University, Hamden,
Connecticut.
Address correspondence to: Elizabeth Tobin Tyler, JD, MA,
Brown University, Alpert Medical School, 222 Richmond St.,
Box G-M1, Providence, RI 02912; tel. 401-863-3520; e-mail
<elizabeth_tobin-tyler@brown.edu>.
©2016 Association of Schools and Programs of Public Health
REFERENCES
  1. 26 U.S.C. §501(r)(3).
 2. Department of the Treasury (US). Additional requirements for
charitable hospitals; community health needs assessments for
charitable hospitals; requirement of a section 4959 excise tax return
and time for filing the return. Fed Reg 2014;79:78954.
  3. Rosenbaum S, Kindig DA, Bao J, Byrnes MK, O’Laughlin C. The
value of the nonprofit hospital tax exemption was $24.6 billion in
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  4. Rev. Rul. 56-185, 1956-1 C.B. 202 (1956).
  5. 26 C.F.R. §1.501(c)(3)-1(d)(1)(ii) (2014).
 6. IHC Health Plans, Inc. v. C.I.R., 325 F.3d 1188, 1195 (10th Cir. 2003).
  7. Rev. Rul. 69-545, 1969-2 C.B. 117 (1969).
 8. Congressional Budget Office (US). Nonprofit hospitals and the
provision of community benefits. Washington: CBO; December
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  9. Government Accountability Office (US). Nonprofit hospitals: varia-
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N.E.2d 1131 (2010).
11. Statement of John Colombo: witness before the House Ways and
Means Committee, hearing on tax-exempt hospitals; 2005 May 26.
12. 26 U.S.C. §501(r)(4)-(6).
13. 42 U.S.C. §1395dd.
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17. Department of Health and Human Services (US), Health Resources
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18. 26 C.F.R. §1.501(r)-3(c) (2014).
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legal partnerships: a review of the evidence. Washington: George
Washington University, School of Public Health and Health Services,
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Partnership; 2013.
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Law and the Public’s Health   199
20. Beck AF, Klein MD, Schaffzin JK, Tallent V, Gillam M, Kahn RS.
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